10/03/2015

Usury and the Conundrums of a Modern-Day Sabbatical Year

I've been interested for many years now by the Biblical system of finance. As I briefly noted in my published Kindle book No More Foreclosures, when you look at the combination of the ban on lending money at interest ("usury") and the forgiveness of debt every seven years during the Sabbatical year, it seems clear that the Torah opposed for-profit lending altogether (with the possible exception of lending to businesses). And given the much-noted role of too much lending in the 2008 economic crisis, it seems that there might be something there that could be relevant today.

The trouble is that all throughout history, people have been desperate to borrow money any way they can, at any terms available. Indeed, that is why the Christian ban on usury eventually fell apart; people had found effective ways of getting around it in practice. Given that, it seems like the most effective way of lessening the harms of debt needs to be through giving some other alternative. More consumer access to equity finance would be a start, as I note in No More Foreclosures, but it seems that there ought to be some way to periodically reset debts, as in the Sabbatical system. (We already have the potential for bankruptcy, but that comes with high consequences to the borrower, imposes an unexpected cost to the lender, and lacks the virtue of a coordinated, society-wide deleveraging that the Sabbatical year is meant to provide.)

To be sure, borrowers would surely love the idea of debt that goes away if you can't pay it, in the abstract. But how on earth would that be attractive to a lender? Lenders would only offer such a product if they are protected themselves; the only ways to do that would be to charge higher interest in the first place, defeating the purpose, or have some kind of subsidy built in from somewhere to cover losses.

I don't know yet what the answer is. But this is what most of my thinking for fun is about, these days, when I'm not prepping for my teaching.

2 comments:

Anonymous
said...

It all goes back to the Popeye Principal: Wimpy would want a hamburger today and pay for it tomorrow. I am not going to comment on whether interest is "usury", but to some extent interest is to make up for the present use of money that is going to be paid back later. Frederick Bastiat did a good job on this.